It looks like the door is gradually being closed on local authorities borrowing to invest in commercial property. The MHCLG issued guidance to local authorities earlier this year with the aim of encouraging a change in behaviour, that is, to curtail local authority commercial property investment for income generation purposes. According to a report published on the Room151 website, that guidance has not had the desired effect and CIPFA are now about to tighten the Prudential Code. It is understandable that the Government is keen, not to allow local authorities to skew the commercial property market (although local authority commercial property investment is still a relatively small proportion of overall commercial property investment in the UK) and there is a worry that some of these investments may prove to be loss-making rather than income generating. However, if the Government is to require local authorities be self-financing then they have to be given the freedom to participate in this type of activity. In practice there are only a very few ways of raising the level of income they need and commercial property investment is the most obvious. If this activity is to be curbed, then what are the other feasible income generation alternatives that can yield the sort of income necessary to plug the hole in local authorities' finances?
“The revised code was a clear signal of what the government wanted to achieve. Maybe that signal was not as clear as it could have been."